Trump and Agreements

My scientific background means that I tend to think that decisions should be evidence based, and be formed after analyzing the information available to whoever is making the decision. But a further point, and one I try to put into my novels, is that decisions involving human activity such as politics or confrontation should relate also to the future consequences. If you are going to make a decision that has adverse consequences, there should be the probability that beneficial ones will significantly outweigh the adverse ones. An interesting point here is that very frequently the adverse consequences can be seen fairly clearly and they are likely to happen, while the beneficial ones tend to rely on hopes. Even an act like buying something falls into this. The immediate adverse consequence is that sum of money is no longer available; the hope is the item will be beneficial. In this case you can probably guess that it will be, but on the other hand when you are young and you buy a used car you can never be sure. There can also be unforeseen adverse consequences. When I purchased my first car I had a mechanic check it out, and I knew the motor would need the piston rings replaced. I factored that into the price I offered, but when the motor was disassembled it was found that when originally assembled, someone had put a bearing in back to front, and the cranckshaft had been ground down. That was an unforeseen adverse effect, particularly on my bank balance.

Taking this to international politics, I believe that one important point is that when a country decides to enter an agreement with others, the other parties can accept that the agreement will be honoured. Doubts as to whether the agreement is worthwhile should be ironed out during the negotiations prior to the agreement being signed. In this sense, it is like a business contract. When one company signs a contract with another company, or person, each side assumes that the other will carry out its obligations. If they do not, they tend to end up in court. If there is absolutely no trust, nobody does any business, and if there is no commerce, everybody ends up the loser. Of course, every now and again someone cheats, and the other parties invariably lose. Occasionally, this can become catastrophic. A possible example of this comes from Kobe steel. Generally speaking, Japanese manufacturing has been praised for its adherence to quality control and quality management, but now it has been reported that Kobe Steel has been selling substandard steel for about a decade. Presumably not all has been substandard, but the problem with steel is that it tends to be structural and deep inside something else of considerably more value, so the ripples will go deep if these allegations are true. If so, this situation is now something of a disaster for Kobe Steel, but it would also be very bad for Japanese commerce as a whole.

It is these unforeseen issues that tend to have a lasting effect, but worse is when one side properly follows its obligations and the other side simply refuses, or decides to pull out of the agreement. The threat of pulling out of an agreement if the other side does not make more concessions is a particularly bad procedure. You get all the concessions you think you can, you agree, then after the other side has started to commit itself, you pull out and demand renegotiations. That, at the very least, leaves a bad taste.

Which brings me to President Trump. Since taking office, he has withdrawn from the Trans-Pacific Partnership (and in fairness, America had yet to sign, so he was entitled to do that), he has withdrawn from the Paris Accord, he has threatened to withdraw from the North American Free Trade Agreement, has signalled that he will withdraw from a trade pact with South Korea, and has now “decertitifed” (whatever that means) a multi-lateral agreement designed to stop Iran from developing nuclear weapons. In the latter case, international observers all agree that Iran is keeping to its side of the deal. Within the US he seems to have been trying as hard as he can to hobble Obamacare, seeing as he cannot abolish it altogether. It is as if he is a serial offender. Iran has apparently signalled to North Korea that it is a waste of time entering into an agreement with the US. Given that Kim can read smoke signals too, that is not encouraging.

Being destructive is easy. Anyone can tear up agreements. The problem then is, what happens next? Maybe Trump does not care, on the grounds that the rest of the world needs the US more than the US needs the rest of the world. I hope that is not what he is thinking, because it is not true.

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Trump on Taxation

President Trump has announced the intention to make sweeping tax reform, and a significant tax reduction for companies, at present reducing from 35% to 16%. His argument is that by doing this, he will encourage multinational companies to stop hoarding money in offshore tax shelters and bring it back to invest in the US. So what to make of this? The tax reform is an extremely good idea. The simpler and more transparent the tax law is, the less time everybody wastes on minimizing tax and the more they devote to actually earning money. Everybody accepts tax reduction is good for them, but the problem then is, does the government earn enough money to pay for what it wants done? That is a detail that has to be left because it depends on what is available to tax, and how much the government wants to spend.

Company tax is an odd animal because one argument is that you collect more or less the same tax irrespective of the rate. It goes like this. A company earns money, but those earnings are spent in four basic ways: investing in new plant; buying goods/services from other companies; paying staff; paying dividends. Looking at these in inverse order, money transferred to dividends becomes personal income, and that is taxed, so what we are avoiding is double tax. Many countries avoid such double taxation by giving company tax credits with the dividends, and while I am unaware of US tax policy on this, as a general rule as long as there is no double taxation, lowering the company tax rate has no adverse effect on dividends because those on the low tax rates in general cannot afford the stock. The important thing is that unlike people, companies do not spend on themselves, leaving aside “perks” such as company jets. My view is such “luxury expense” for senior staff should be taxed as a personal benefit to them.

Paying staff means the staff pay tax on their earnings. Now, if the staff are low paid, lowering company tax does reduce the tax collected, because most staff do not pay the 35% rate, although some may be on a higher rate. Similarly, buying goods and services from other companies simply transfers the taxable profits, although if the goods are imported, the profits go elsewhere. The question here is, then, will the US increase local production? The reason many multinationals manufacture offshore is that wages there are seriously lower, and they do not have to pay benefits and compliance is less strict. There is rationality in thinking that such goods manufactured offshore should be taxed as if the company met home compliance and had paid home benefits and wages because that levels the playing field from the “own country” point of view, but of course it hurts developing countries.

The virtuous part, according to Trump, is that by lowering company tax, multinationals will bring back more of the offshore funds accreted, and all companies will have more money to invest and create new jobs, or pay dividends. The next question is, is this valid reasoning? I am not so sure. The problem with investing to create new jobs is you have to have something to invest in. That is not so easy to find. There is no real evidence that company tax is inhibiting investment because there is no real evidence that, leaving aside small individual companies in trouble, there is a widespread shortage of money. What I see is more a general shortage of ideas. Thus we see the new product is another mobile phone that is only a little bit different from the last one. Ask yourself this: what would you really want that is not currently available if you had the money to buy it?

What that suggests is the economic slowdown is not caused by higher corporate tax, but more through inequality. Those with money already have most of what they want, and those without money cannot afford much of what is there. If we really want to promote growth, then I am afraid the poorer have to have more purchasing power, because they are the only ones at the moment who could power acceleration in sales. Of course the rich will keep on buying, but only at their current rate, and that will not power the growth President Trump wants. So my question is, will President Trump do anything to reduce inequality?

The future did not seem to work!

When I started my career in chemistry as an undergraduate, chemists were an optimistic bunch, and everyone supported this view. Eventually, so it was felt, chemists would provide a substance to do just about anything people wanted, provided the laws of physics and chemistry permitted it. Thus something that was repelled by gravity was out, but a surprising lot was in. There was a shortage of chemists, and good paying jobs were guaranteed.

By the time I had finished my PhD, governments and businesses everywhere decided they had enough chemists for the time being thank you. The exciting future could be put on hold. For the time being, let us all stick to what we have. Of course there were still jobs; they were just an awfully lot harder to find. The golden days for jobs were over; as it happened, that was not the only thing that was over. In some people’s eyes, chemicals were about to become national villains.

There was an element of unthinking optimism from some. I recall in one of my undergraduate lectures where the structure of penicillin was discussed. Penicillin is a member of a class of chemicals called beta lactams, and the question of bacterial tolerance was discussed. The structure of penicillin is (https://en.wikipedia.org/wiki/Penicillin) where R defines the carboxylic acid to that amide. The answer to bacterial tolerance was simple: there is almost an infinite number of possible carboxylic acids (the variation is changing R) so chemists could always be a step ahead of the bugs. You might notice a flaw in that argument. Suppose the enzymes of the bug attacked the lactam end of the molecule and ignored the carboxylic acid amide? Yes, when bacteria learned to do that, the effectiveness of all penicillins disappears. Fortunately for us, this seems to be a more difficult achievement, and penicillins still have their uses.

The next question is, why did this happen? The answer is simple: stupidity. People stopped restricting the use to countering important infections. They started to be available “over the counter” in some places, and they were used intermittently by some, or as prophylactics by others. Not using the full course meant that some bacteria were not eliminated, and since they were the most resistant ones, thanks to evolution when they entered the environment, they conveyed some of the resistance. This was made worse by agricultural use where low levels were used to promote growth. If that was not a recipe to breed resistance, what was?

The next “disaster” to happen was the recognition of ozone depletion, caused by the presence of chlorofluorocarbons, which on photolysis in the upper atmosphere created free radicals that destroyed ozone. The chlorofluorocarbons arose from spray cans, essential for hair spray and graffiti. This problem appears to have been successfully solved, not by banning spray cans, not by requesting restraint from users, but rather by replacing the chlorofluorocarbons with hydrocarbon propellant.

One problem we have not addressed, despite the fact that everyone knows it is there, is rubbish in the environment. What inspired this post was the announcement that rubbish has been found in the bottom of the Marianna trench. Hardly surprising; heavy things sink. But some also floats. The amounts of waste plastic in the oceans is simply horrendous, and only too much of it is killing fish and sea mammals. What starts off as a useful idea can end up generating a nightmare if people do not treat it properly. One example that might happen comes from a news report this week: a new type of plastic bottle has been developed that is extremely slippery, and hence you can more easily get out the last bit of ketchup. Now, how will this be recycled? I once developed a reasonably sophisticated process for recycling plastics, and the major nightmare is the multi-layered plastics with hopelessly incompatible properties. This material has at least three different components, and at least one of them appears to be just about totally incompatible with everything else, which is where the special slipperiness comes from. So, what will happen to all these bottles?

Then last problem to be listed here is climate change. The problem is that some of the more important people, such as some politicians, do not believe in it sufficiently to do anything about it. The last thing a politician wants to do is irritate those who fund his election campaign. Accordingly, that problem may be insoluble in practice.

The common problem here is that things tend to get used without thinking of the consequences of what is likely to happen. Where things have gone wrong is people. The potential failure of antibiotics is simply due to greed from the agricultural sector; there was no need for its use as a growth promoter when the downside is the return of bacterial dominance. The filling of the oceans with plastic bags is just sloth. Yes, the bag is useful, but the bag does not have to end in the sea. Climate change is a bit more difficult, but again people are the problem, this time in voting for politicians that announce they don’t believe in it. If everybody agreed not to vote for anyone who refused to take action, I bet there would be action. But people don’t want to do that, because action will involve increased taxes and a requirement to be better citizens.

Which raises the question, do we need more science? In the most recent edition of Nature there was an interesting comment: people pay taxes for one of two reasons, namely they feel extremely generous and want to good in the world, or alternatively, they pay them because they will go to jail if they don’t. This was followed by the comment to scientists: do you feel your work is so important someone should be thrown into jail if they don’t fund it? That puts things into perspective, doesn’t it? What about adding if they question who the discovery will benefit.

Cancer: the problem.

I read an interesting blog recently entitled “The War on Cancer” (http://sten.astronomycafe.net/the-war-on-cancer/). Apparently, in the US a little under 600,000 people die of it each year. The author, Dr Sten Odenwald, then set out to illustrate that funding for cancer research is far too low. I think it was President Nixon who coined the phrase, “war on cancer”, and set it as an objective, in the same way Kennedy had set the Moon landing as an objective, but this was doomed to fail, at least in the spectacular way. The reason is the nature of cancer, which, as an aside, is not one disease. We have been trying to cure this for a very long time, but with mixed results. Gaius Plinius Secundus recommended a poultice of broccoli for breast cancer, and asserted it works. There are indeed agents in broccoli that will deal with some breast cancers, but by no means all, and even then, the cancer would need to be near the surface. There are at least twenty different types of breast cancer. Drugs like tamoxifen stop the growth of at least one type, monoclonal antibodies help in some others. So we have made some progress, but there are still severe problems, especially if the tumour metastasizes (dislodges cells to other parts of the body).

It is the nature of cancer that is the problem. Cells grow around nucleic acid, and nucleic acids reproduce by base pairing, then splitting, each strand now being the frame for the production of more nucleic acid. Thus after splitting, when a new double helix is finished being assembled, the amount of nucleic acid has doubled, so a new pair of cells is possible, the old cell having been destroyed. So what can go wrong? You will usually read that copying is not correct, or something is added to the double helix, but I don’t believe that. It is the peculiar nature of the hydrogen bonding that either the correct nucleic acid goes onto the growing strand or nothing does. That is why reproduction is so accurate. In the double helix, the reactive sites are protected, as they are in the interior of the helix, and the outside is the phosphate. A further substitution on the phosphate to make a tri-ester would be a nuisance, but it would not be very stable, and it would repair itself. Further, it would require a highly reactive reagent to do this, as it is exceedingly difficult to make phosphate esters in cold water other than through enzymatic catalysis. No, I think the problem probably arises during the splitting stage when the reactive sites become exposed. If something happens to the nitrogen functions, then that will block the formation of the next double helix at that point.

At that stage, the body will attack the nucleic acid at that point, and the next usual outcome will be that the various parts of the strand will be degraded, and the bits reused or excreted. But if the problem occurred in certain places, it may be that what is left can start reproducing. If that happens you have something growing that has no function for you, BUT it looks like it is part of your body, because up to a point it is. The growth just keeps growing, and reproducing itself. The reason there are so many different cancers is there are so many places where a nucleic acid could go wrong, and each different place that can reproduce will lead to a growth that is slightly different from any others. Because it looks like part of your body, your natural defences ignore it.

So far, we have largely relied on surgery, radiation or drugs. So, how is progress? In some cases, such as leukemia, progress is good, and it is often curable. In other cases, life can be extended, but according to Wikipedia, since Nixon declared war on cancer, the US alone has spent $200 billion on research. Between 1950 and 2005, the death rate, adjusted for population size and age has declined by five per cent. On the other hand, while in remission many patients have had life extended.

However, we should ask, are we doing anything wrong? I think we are, and one problem relates to intellectual property rights. Here is an example of what I mean. In the 1980s I was involved in a project to extract an active material from a marine sponge. My company developed some scale-up technology and made a few grams of this material, which, from reports I received, if the odd microgram was introduced to a solid tumour, the tumour blistered and died, leaving a well-repaired skin outside wherever the organ was. This property was limited to studies on rats, probably with external carcinoma. Anyway, the company that hired us ran into difficulty with its source of funds and went bankrupt, however, somehow ownership of the intellectual property lived on. At the time, there was no known technique of introducing a material as reactive as this to internal tumours, nor did we know whether that would even be beneficial. Essentially, the project was in an early stage, and maybe the material would not be beneficial. Who knows? The problem is, now we don’t know and nobody is likely to work further because the patents have expired. Any company working on that will have all the expense, and then somebody else can come in and take the benefits. In my opinion, this is not a desirable outcome. We should not have a situation where promising knowledge simply gets lost because of formal procedure.

Equally, we should not have the situation where drugs become ridiculously expensive. Why should the unfortunates who get a rather rare cancer have to pay the huge prices of drug companies? I am not saying drug companies should not get a fair return, but I think society should pay for this. Think of it as compulsory insurance. The alternative is a family might have to decide whether to bankrupt themselves, kill the grandchildren’s education prospects to buy a year or so for grandmother, or whether to just let her die. What sort of society is it that allows this?

Cancer is one of those diseases that everybody comes into contact with one way or another. In my case, my father died of pancreatic cancer, and I am a widower because of cancer. Yes, these things happen, but isn’t it in everybody’s interest to try and do what we can to at least minimize the harsh effects?

Free enterprise at work: the vulture fund.

We have all heard of financial goings on in Russia that turn up some toes in disgust. There is no doubt that huge amounts of wealth have been accrued there by a very limited number of favoured people for no good reason. The wealth was accrued through political favours/gifts on a huge scale. Everyone blames Putin, and while I feel he has hardly shone in cleaning this mess up, I still put the majority of the blame on Yeltsin. Nevertheless, there are many who seem to think that is a sign of the general immorality of Russians. That could not happen in the West. If you think that, think again. A recent item on the Huffington Post introduces the reader to the vulture fund. http://www.huffingtonpost.com/2016/05/12/vulture-fund-lobbying_n_9954612.html

A vulture fund is one that picks up for hardly anything some debt-ridden entity that everyone else has written off, and perforce, they get it for very little. The vulture part comes from the fact they are feeding off what is generally recognized as expired. You may think that is fair enough; they are taking a huge risk, and they get them cheap because they are worth essentially nothing. If that were all there is to it, I would agree wholeheartedly, but it is not. What these funds do is to buy the scrip up extremely cheaply, and then spend very large amounts of money to make the scrip valuable, in which case they sell at a huge profit. Nothing wrong with that if the money was spent on the entity, to sort it out, stop aberrant behaviour, etc. An example of such virtuous vulturing is what Steve Jobs did for Apple. Apple was heading for disaster at an astonishing rate before he returned, and with considerable effort he turned the carcass into one of the most valuable companies in the world. That is great.

But that is not what I am referring to. The bad vultures do not spend their money on making the entity work well again. They spend their money on influencing the decisions that will be made as to its future, and in particular to bailouts. So when a bailout comes, the vultures pass go and bank a huge profit by selling. The bailouts tend to be direct gifts to the vultures.

How well this will work will depend on the nature of the asset. If the asset is inherently healthy, they may present publicity that disses it, which may lead the market to get out of the asset, and their short position rolls in the loot. This particular method presents an interesting position for me, because I am currently writing a thriller type of novel in which something similar happens, and here I read an article that shows what I was thinking actually is happening. (Except my method of “dissing” is a bit more criminal. If you are writing a thriller, there is no point in everybody being legal.) So much for my imagining that you can be original when the objective is to gather loot. I an afraid I must consign myself to the barely amateur class.

Now, suppose the vultures somehow access an asset, directly or indirectly, that the public does not want to die, such as something related to health that in the end cannot be left to rot? The vultures then lobby for political action to prevent death, and then, for the politicians to come out of it without egg on face, they have the debts cleared, to the fund, of course. Paid for by, you guessed, the tax payer. At least that is the plan. According to that article, billions in profits have been made. The pressure will vary, but the key element in most such transactions is they would not work unless the government helped them.

Also of interest is the fact that hedge funds and their like appear to get special tax privileges. This has the effect of giving them a huge advantage over others who might compete with them, which raises two questions. The first is, why the special privileges? What do they do for society that is so valuable? Sucking up money and making a few very very rich is not an adequate answer for me. The second question is, how did they get these tremendous tax advantages? Now, surely you do not suspect this to have arisen as a consequence of political lobbying do you? That would be, well, up there with what you are accusing Putin of doing, and that could not happen in the West, could it?

Of course the hedge funds do not always get their own way. The article cited has an interesting few sentences on the Puerto Rican debt issue. Now Puerto Rico is a US territory, so you might think that being a territory of the richest country on the planet might mean a good infrastructure. The article cites the Eleanor Roosevelt Elementary School, a good solid US name, in which the electricity supply is such that they cannot run two computers at the same time and there are no lights when it rains. You don’t want to hear about the major trauma centre. Nevertheless, some hedge funds will probably take a bath. Why? What has happened is that two groups of hedge funds have apparently taken opposite bets, and thanks to all the lobbying and counter-lobbying, nothing is happening. The situation for the Puerto Ricans is not helped by the fact that the issue is tied down by a Constitutional argument in the Republican majority Congress. Paul Ryan apparently wants to help Puerto Rico, on the basis that Article IV of the Constitution stipulates Congress has power “to dispose of and make all needful rules and regulations respecting the territory.” Those on the right argue the financial problems are their own, and, moreover, what is “the territory”? They argue there is nothing in the Constitution that specifies Puerto Rico, so don’t do anything. Presumably the argument is, leave it to the market, i.e. the hedge funds, and all will be, if not well, at least elsewhere.

This is a clear reason why you cannot leave everything to the market: too much power gets concentrated in few hands, and those few hands have only one objective: to make more money. That does not mean Communism is the answer. What it does mean is the government ought to act as a counter balance and stop excessive misuse of money.

The stock market dives. Woe! Woe! Woe!

The news this week appears to be focused on the stock markets around the world seemingly going into a dive. One of the things that puzzles me is why this is regarded as such a disaster. I accept that if some investor actually badly needs money and has to sell, this is not good news, but apart from that, and apart from speculators getting it wrong (and here I have little sympathy) what is the problem? If the number of people employed stays the same, the amount produced stays the same, the wages and salaries stay the same, what is important stays the same. What matters in a business is cash flow. If raw materials are available, if costs are stable, if interest rates are low, and if sales are constant, variations in stock prices seem to me to be irrelevant.

Maybe we are all a bunch of wailers! Recall that as oil prices kept rising, there was a general wailing that energy costs would stifle the market. Well, now oil prices seem to be as low as ever, thanks to fracking, and there is general wailing, seemingly because the oil merchants are no longer able to extort such high profits from everyone. (Although, from the price of petrol locally, I rather fancy oil companies are doing rather well out of this too. Prices go up very quickly, and down rather slowly.) It seems to me quite probable that if oil prices stayed the same, there would also be general wailing.

In the alleged “bad news” column, growth in China is falling. The most pessimistic prediction I have seen is that it will fall to (horrors) 5 % this year. So, there may be problems. Thus the Australian mining sector will suffer because construction in China is slowing to a more sustainable level. So? Who else is growing at 5%? If growth were universally zero, would not things be the same as last year? Was last year that bad?

So the European economies are falling backwards. The Greek financial mess is at least partly the fault of the rest of Europe. The huge number of asylum-seekers from the muslim regions also hardly helps, but surely that is a problem Europe has to face. The sanctions against Russia is self-imposed. Cutting off your biggest markets carries a price, and politicians should have made preparations for those consequences, but they did not. The inability to make good predictions and then act on them was also a failure. Consider the dairy industry. A year or so ago there were very high prices. However, the sanctions against Russia removed one of the bigger consumers, and worse, only too many farmers thought the dairy prices were so high they had to get into it. A major reduction in the market size, and a major increase in production meant that prices would collapse. All the money you pay in taxes and that leads to information gathering might have been analysed and appropriate advice given. Of course this presupposes governments are interested in their citizens.

I suspect reality has little to do with the collapse. Quantitative easing pushed too much money into the system for too long. Low interest rates have forced people to invest in stocks because they are one of the few assets that would normally give much better returns in period of low interest. There was too much cash chasing too few stocks, and the prices rose to ridiculous levels. The price to earnings ratios of many mature shares exceeded 17, and that was in a period of high earnings. Those who know would have decided this could be the time to liquidate. The problem is, once some start selling, everyone wants to sell and the stock prices tank, an issue compounded by computerized trading.

Is this all that bad? If you are a long term investor, or a value investor, this is good, because as the prices tumble, there are bargains out there if you know what you are doing. Those that get hurt are the greedy ones who do not know what they are doing, and surely there is some justice in that.